The Pension Schemes Bill passed into law on Wednesday, delivering major reform to the UK pensions worth around £2 trillion.
Over 20 million workers could benefit from the reforms, with the government estimating an average worker could receive up to £29,000 extra by the time they retire.
The act will require pension schemes to prove they are delivering value for money, enable the automatic consolidation of small pensions, and create larger, better-performing funds.
Many people build up several small pensions as they move between jobs, making it difficult to keep track of their retirement savings. The new law will enable each sum to be combined automatically, giving savers a clearer picture of their pension.
The new act also introduces a ‘value for money’ (VFM) framework, which aims to protect savers from underperforming schemes. Pension schemes managers and trustees must offer clear default options for turning savings into retirement income to provide people who choose this option with a sustainable income in their retirement.
Minister for Pensions Torsten Bell said the passing of the act is a landmark moment for UK workers.
“For too long, our pensions system has been fragmented and rarely ensures that people’s savings are working hard enough to support them in retirement.
“The Pensions Schemes Act will change that by creating schemes that drive down costs, deliver higher returns, and give savers the security they deserve.”
The act aims to transform the pensions landscape, ensuring every pound saved delivers stronger returns while driving investment in the economy.
As well as enabling small pensions to be automatically consolidated, the VFM framework will standardise how value is assessed to provide transparency and comparability and encourage competition and a long-term focus on value across the DC pensions sector.
Multi-employer defined contribution ‘megafunds’ of at least £25 billion will drive down costs and enable investment in a wider range of assets, including in UK businesses and infrastructure.
Local government pension scheme assets will be consolidated into pools managed by FCA-regulated managers, supporting long-term investment in local infrastructure, housing and clean energy across the country.
Defined benefit schemes will receive greater flexibility to release surplus funds, releasing around £160 billion to support employers and deliver for scheme members.
“Together the measures will benefit working people on an average salary who save into a pensions pot over their career by up to £29,000 by the time they retire,” the Department for Work and Pensions said in a statement.
“The Act paves the way for the upcoming Pensions Commission which is examining how we ensure tomorrow’s pensioners are on track for a comfortable retirement and will make recommendations for change – potentially benefiting millions of people across the UK.”
